Julia Zellmann, Duong Doan & Verena Goess

SS 2011 Project Evaluation and Finance

28 April 2011






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

CASE: Tate and Lyle

Introduction
The sugar industry
Tate & Lyle The company
Project History
Financing the Project
Project Evaluation
Conclusion






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

World Sugar Industry in 1997

Among few agriculture commodities: developed countries compete
with developing countries
tariff & non-tariff barriers

Around 1995 1997: drop in sugar price






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

How
Do
We
Get
Sugar?






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

s

Developing country
Long recession
Agriculture contributed nearly half GDP






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

s

Sugar production:
Labor intensive: 1- 7.5 tons/ day vs. modern mill: 5000 tons/
day
Low extraction rate

Sugar market:
Demand: high
Price: high
Import tariff: 30%

Ministry of Agriculture Food Industry: increase domestic sugar
production






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Tate & Lyle:

- Formed in 1921

- Based in London

- /
and raw sugar

- Sales in 1997: 5 047 million






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Tate & Lyle:

Today

'


- Sales 3 553 million (year ended 31 March 2009)

- Two global business units
- Speciality Food Ingredients
(sweeteners, texturants,
wellness ingredients)
- Bulk Ingredients
(high fructose corn syrup,
acidulants)






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Tate & Lyle:

- Tate & Lyle operates mainly in two industries
- Corn wet milling
- High-intensity sweeteners

- Over 30 production facilities and network of research centers throughout
the Americas, Europe and South East Asia

- Four markets:
- Food and Beverage
- Industrial
- Animal feed
- Pharmaceutical and Personal Care






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project History

Nghe An
Per capita income:
about 2/3 of national average
Poor health service
91% literacy rate
75 % farmer households
Only basic infrastructure

Nghe An
Project area






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project History

The plan
Built sugar mill and refinery
K
Better infrastructure built by Nghe An government

Plan to complete it until November 1998
capacity of 330,000 tons of cane for that season
Plan to reach ultimate capacity in November 2002
Ultimate capacity of 900,000 tons of cane per year






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project History

The plan
Built sugar mill and refinery
Outreach programto farmers
Better infrastructure built by Nghe An government

Farmers in an area of 50 km
To reach full capacity:
18.000 hectares of cane from 22.000 farmers necessary






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project History

The plan
Built sugar mill and refinery
Outreach programto farmers
Better infrastructure built by Nghe An government

Government agreed to spend $800.000
Tate & Lyle expected infrastructure to be ready by 1998/1999
harvesting season
300 trucks necessary to transport cane during harvesting season






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project History

Project Risks
Farmers sell (enough) cane
Government does not improve infrastructure in time
Not enough truck hauliers available
Sugar prices might continue falling

Start of construction 1996
Finished 1998






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project Timeline:


Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998

Investment license

Start of Construction

1st ICF request

Bridge loan from Rabobank

Completion of Construction

2nd IFC request






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Financing the Project:

Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998

In February 1996: Investment license






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Financing the Project:

Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998

In September 1996: Start of Construction






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Financing the Project:

- Total cost $90 million
- 70% debt Highly leveraged capital structure

Equity partner

- Mitr Phol Sugar Company
- Vietnam Fund Limited
- Nghe An Sugar Company

Bank debt

- Western banks
- Thai banks
- Bilateral agencies






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Financing the Project:

Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998

In October 1996, first IFC request






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

International Finance Corporation (IFC):

- Founded in 1956
- Based in Washington D. C.
- Member of the World Bank Group
- Owned by 182 member countries, authorized share
capital of $2,4 billion
- t
financing for private sector projects

Aim:
- Reducing poverty and improving lives
- Stimulation of economic growth
Private sector investments in developing
countries






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Criteria, to be eligible for IFC funding:

- Location in a developing country that is a member of
IFC

- Private sector

-Technically sound

- Good prospects of being profitable

- Benefit the local economy

- Environmentally and socially sound






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

IFC Participation:

- Protection against political risks in Vietnam

- Tax advantages
- IFC loans are exempt from withholding taxes
- Payments to other foreign banks would be subject
to a 10% withholding tax on top of the interest
element of debt services

- Reserve requirements eliminated






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project Sources and Uses (US$ millions):






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Major concerns of IFC:

- Provision of a sufficient amount of cane from local
famers

- Implementation of infrastructure by the government

- World sugar price is falling

- Protection of local sugar production

BUT:

- Large social benefits






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Financing the Project

Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998

In October 1996, first IFC request without success






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Financing the Project

Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998

Proceeding with construction due to bridge loan from

Rabobank ($40 million) plus equity and local credits






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Financing the Project

Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998

End of 1998: Completion of construction






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Financing the Project

Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998

Major concerns:

- Not enough cane

- No completion of the infrastructure

- Need of repayment of Rabobank loan






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Financing the Project

Feb. 1996
Sep. 1996
Oct. 1996
1997
1998
1998

Second IFC request






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Cash Flow Forecast (if IFC refinances the NATL project)






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Cash Flow Forecast (if IFC refinances the NATL project)






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Cash Flow Forecast (if IFC refinances the NATL project)

/
- EBITDA: Earnings before Interest, Tax, Depreciation and Amortization
= Revenue Expenses (excl. Interest, Tax, Depreciation, Amortization)
- EBIT: Earnings before Interest and Tax (Operating Income)
= Revenue Operating Expenses (Expenses, excluding Tax and Interest )
= EBITDA - Depreciation
- EBIAT: Earnings before Interest after Taxes
= Revenue COGS - Expenses, including Tax and excluding Interest
= EBIT - Taxes

- Nominal free cash flow: cash flow in absolute terms, without adjusting for
inflation
- Real free cash flow: cash flow in current purchasing power, adjusted for


inflation






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project Evaluation

Are falling Sugar prices only temporary or permanent?

Does the Project contribute to sustainable development?

-> Evaluated via the ERR (Economic rate of return)
ERR = all costs and benefits from a social perspective
(FRR = Financial rate of return)






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project Evaluation
ERR

Customers
Producers of
Complementary
Products

Rest of
Society
Financiers (FRR)

Competitors &
New Entrants

Neighbors
Employees

Suppliers






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project Evaluation
ERR

Customers
Producers of
Complementary
Products

Rest of
Society
Financiers (FRR)

Competitors &
New Entrants

Neighbors
Employees

Suppliers
Cane farmers

Truck hauliers






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Project Evaluation
ERR

How would you decide?






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Conclusion
/&

Agree to finance the project
Ensure ongoing compliance with World Bank guidelines during the
life of the project:
Monitoring reports by NATL
Periodic site visits.






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Current situation

World standard efficiency and environmental performance

Largest sugar producer in Vietnam: 12000 tons/day, 120 000
metric/ year, 10% of domestic production.

Sugarcane productivity: 120 130 tons/ha






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Social impact

28,000 cane farmers, 50% minority ethnic groups

$16 million per year to farmers and cane transporters
Cash flow into poor area increased x 4

Living standards: motorbikes, TVs, houses, roads

Technology transfer






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Thank you for your attention! -






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Quiz:

How long did it take to build the plant?

How many farmers were needed to produce full capacity?
Name 3 major project risks

How is the method to evaluate the project called?

Name 3 groups affected by the project






Outline

The sugar industry

Tate & Lyle The
company

Project History

Financing the
Project

Project Evaluation

Conclusion

Sources:
Internet:
http://www.tateandlyle.com/Pages/default.aspx, 18. April 2011
http://www.ifc.org/, 18.April 2011
http://www.investopedia.com/, 20. April 2011
http://www.isgmard.org.vn/What%20is%20ISG/Plenary2004%20
Docs/NAT&L-e.pdf , NAT&L, 9 Nov 2004
http://www.tateandlyle.com/InvestorRelations/ResultsandPresen
tations/Documents/2010/USDResults_for_Six_Months_to_30_Sep
t_2010PR.pdf, 4 November 2010
http://www.unctad.org/en/docs//webdiaeia20111_en.pdf, 17
January 2011
Books:
Esty, C. E. (2004). Modern Project Finance. Boston: Harvard
Business School Publishing